I have been receiving a steady stream of articles on the changes in the LTCI arena, which have largely confirmed my long held view of this unique insurance product. I'd say, generally, from the tone of these, the following:

1. When qualified LTCI came into the market in 1998 (from HIPAA), the policies were underpriced. Most, deeply underpriced. This was most likely to achieve market share and to serve as the performance criteria for executive bonuses.

2. The industry has promoted LTCI not as true insurance, but as a kind of cost-sharing plan, where the majority of Americans will spend time in assisted living and nursing homes, thus all baby-boomers should start "preparing" for this through LTCI. Note: with true insurance there is very little chance you will ever make a claim either because you don't hold the policy that long or you die before realizing a loss. This is a fundamental principal of insurance.

3. The industry claims that they could not anticipate the growth in medical costs, the lower than expected lapse rates and the sustained low interest rate on the bonds it holds in its long term capital accounts....as the reasons for suspending LTCI product lines and the premium increases. These published reasons are completely bogus and, at least to me, clearly show the deception the industry has used in initiating and marketing this product.

- LTCI does not cover medical costs...it covers custodial costs, which are made up primarily of room and board with some unskilled and in the late stages, skilled labor.- People don't abandon savings plans, as they consider they have 'skin in the game'. Maybe LTCI wasn't marketed as a savings plan, maybe it was. But the perception is that it is a savings plan. Hence, low surrenders should be an expectation, not a surprise.- Quality long bonds (representing most of the insurance industry's capital reserve) have been one of the higher performing sectors over the past 10 years, not the lowest. Bond interest rates have been low, but this becomes important when the insurer starts paying claims....something that hasn't yet happened to any significant degree from the baby-boomers who hold most of the qualified LTC policies....and won't for another 15-20 years.

The underlying pathology with LTCI is it is a long term contract where the insurer holds all the money, most claims will not occur for 20 to 30 years from initial issue, the insured cannot transfer the contract (as can be done via a 1035 transfer for life insurance or annuities) and the industry can claim new-product ignorance and misfortune when the policyholders are billed for the huge underfunding that was inevitable. In short, the incentives with this product are all wrong for the consumer....which is why I said "NO THANK YOU" back when it was initially heavily marketed in the early 2000s.

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